Senate President Pro Tem Phil Berger sent an email response to a constituent yesterday on the subejct of the proposed legislation to slash unemployment insurance benefits. Sadly, the email is riddled with misinformation to the degree that one wonders whether the senator truly understands what he is doing to the unemployment insurance system. Here is a point-by-point refutation crafted by Alexandra Sirota of the NC Budget and Tax Center:

Berger: “North Carolina owes the federal government more than $2 billion, because of previous leaders mismanagement for several years.”

The truth: Job loss and tax cuts drove trust fund debt not mismanagement. The cause of North Carolina’s unemployment trust fund crisis was a series of tax cuts enacted in the 1990s and the historic job loss from the two recessions of the 2000s. The trust fund was already well-below agreed upon safe levels before the 2001 recession. Improper payments represent just 2.4% of the UI Trust Fund balance.

Berger: “As long as the debt exists, the federal government will require North Carolina businesses to pay higher taxes, keeping them from creating jobs and increasing wages.”

The truth: Unemployment insurance tax cuts are not going to spur job creation. The FUTA credit reduction is an automatic increase on employer’s contributions to unemployment insurance. At the maximum level under this payout scheme, the FUTA credit reduction will reach $84 per employee per year or 4 cents an hour per worker. While proponents of the bill claim that this represents a significant barrier to job creation, there is little evidence that unemployment insurance costs influence hiring decisions. In fact, in states that have adopted low unemployment insurance contribution systems there is no relationship to employment levels.

Berger: “We have worked with all stakeholders to create a balanced approach that is fair to both individuals and businesses.”

The truth: All stakeholders were not at the table in the design of this plan. The plan was crafted by legislators over the course of nine weeks in closed door meetings that were not open to the public. The plan as presented by legislators in Revenue Laws was a fait accompli and comments from worker advocates were limited to just a few minutes with no debate or negotiation on the bill.

In addition. the plan put forward is out of balance and far from fair. The Legislative Office of Fiscal Research says that the House bill will save over $1.5 billion in 2014. But $951 million will come from cutting benefits.Benefit cuts will continue to outweigh employers’ tax costs by more than 2 to 1 until the debt is gone.

Berger: “Even if the new rules applied to current beneficiaries, 84 percent would maintain their current level of benefits.”

The truth: All unemployed workers will be affected by this bill and the entire economy too. The 16% who will be affected are just those receiving the maximum benefit amount. The changes to the duration of weeks would affect an estimated 60% of workers under high unemployment conditions. The changes to the calculation of benefits represent the most significant fiscal impact for the bill and will have the biggest impact on all workers who will no longer see their benefits calculated based on high quarters but just the last two. For workers who see their hours decline before a layoff, the impact will be significant. All workers will be affected by an unemployment insurance that can no longer serve its stabilizing function.

Berger: “Also employers contribution rates to the state unemployment tax will increase by .06 percent.”

The truth: Employers contributions through state taxes will be minimal and some will see their taxes cut. Employers contribution rates will increase by .06 at the minimum and maximum of the tax formula. The total contribution through state taxes by employers will be greatest at $20 million or 0.7 percent of the overall savings. However, roughly 12 percent of employer’s will see their rates decrease under this new tax formula and 13 percent will see no change in their tax rate. Moreover, because of the scope of benefit cuts, over time employers will contributing roughly 70 percent less to the system than under current law by 2021.

Berger: “North Carolina currently has the highest weekly benefit amount and offers them for longest period of time among neighboring states.”

The truth: North Carolina is in the middle of the pack, shouldn’t race to the bottom. North Carolina’s weekly benefit amount of $296 ranks the state 23rd. While North Carolina’s maximum weekly benefit amount ranks the state 9th, it is based on a formula used by 35 states and thus the resulting amount of maximum benefit payments reflects the wages paid in the state’s labor market. Forty three other states offer 26 weeks of unemployment insurance to those out of work through no fault of their own.

Berger: These necessary changes will eliminate the debt in three years, make North Carolinas unemployment system solvent, and remove one of the biggest impediments to job creation and economic growth.

The truth: Proposed unemployment insurance changes reduce the stabilizing force of the system in the economy. Again, unemployment insurance contributions represent a minimal cost to employers relative to the total compensation package for an employee. The reduction in benefits paid through the changes in this proposal will have the potential to negatively impact businesses and the economy, particularly in future downturns. Unemployment insurance dollars go right back into local economies – to pay for rents, mortgages, food, clothing. Economists consistently characterize unemployment insurance as one of the most effective forms of economic stimulus – with every unemployment insurance dollar stabilizing the economy with anywhere from $1.55 to $2 in economic activity.

2 Comments

Allen Daniel

February 12, 2013 at 2:37 pm

In response to Sen. Berger’s first point, I believe his message was misinterpreted. The system has, indeed, been mismanaged for years. That doesn’t necessarily mean fraud and corruption or “improper payments” as noted in the response. As an employer, my state unemployment tax rate is 0.00%; in a period of unemployment sometimes exceeding 10%. That is definitely mismanagement.

david esmay

February 12, 2013 at 3:46 pm

Phil Berger lost his grasp of the truth a long, long, time ago. He be better suited chasing ambulances and DWI offenders, oh ,wait.